By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
By Anna Merlan
By Lee Escobedo
After only four months of testing, the experiment has already logged its first casualty: In the wake of drastic cuts in services initiated by the managed-care companies, New Place counselors saw their funding stream evaporate and, on October 15, they were forced to shut their doors.
Emilio, Scott, Natasha, and Greg -- welcome to the dawn of a new era in managed care.
In many ways, the trend toward privatization marks an evolution from the days when government and charities bore the responsibility for minding the public's welfare to a new, more cynical era in which the public's welfare is a commodity, bought and sold on the open market.
This new craze is born out of the philosophy that government agencies, with all their hoops and hair-splitting regulations, have grown bloated and can no longer deliver quality social services. Like schoolgirls at a Ricky Martin concert, the politicians are now rushing the stage of the private sector, infatuated with the notion that businesses can put on a better show because of their ability to cut costs and maximize profits.
In Texas, this new era is well under way. Consider the state's criminal justice system: Some jails are now controlled by a Nashville-based outfit called the Corrections Corporation of America, which bills itself as "the industry leader in private sector corrections worldwide." Before the Dallas school board, there's a proposal to hire a for-profit company called The Edison Project to take over as many as a dozen floundering schools. Down at City Hall, even the comparatively simple task of issuing rabies tags for cats and dogs is now performed by a private company.
Northstar, in a nutshell, is just the latest phase of this trend.
"It's like Starbucks," says state Rep. Garnet Coleman, a Democrat from Houston. "It comes out and everyone says, 'Oh, this is great,' and then later you learn that, wait a minute, Starbucks isn't the best coffee."
Texas, like other states, began dabbling with the idea of privatizing the public-health-care industry in the early 1990s, just when managed care was exploding in the private sector. Back then, HMOs' boards of directors saw that the public sector was a new and otherwise untapped market, and they began convincing state lawmakers that managed care was the solution to their public-health-care woes. Today, virtually every state in the nation is experimenting with some type of public managed-health-care model. While some models have met with varying degrees of financial success, others have been disasters, and none has proven truly effective at improving the health of the low-income residents.
Most notable among the disasters is the ongoing project in Montana, where state officials fired Georgia-based Magellan in March -- just two years into Magellan's five-year contract with that state and four months before Texas decided to hire Magellan for Northstar. As part of the debacle, which consumed the front pages of Montana's newspapers, Magellan racked up millions of dollars in losses that it tried to offset by cutting payments to providers and denying care to hundreds of mental patients.
Although one angry psychiatrist publicly called Magellan's actions "irresponsible...criminal," the Montana experiment is generally thought to have failed because state lawmakers refused to pump enough money into the project from the beginning. Magellan could easily face the same problems in Texas, where the No. 1 complaint about the public-health-care system is that it is historically underfunded. And state lawmakers failed to correct the problem before they officially embraced managed care in 1995.
The state's Medicaid spending had soared from $7.5 billion in 1990 to $18.7 billion in 1995. Under the direction of then Lt. Gov. Bob Bullock, lawmakers began drafting new legislation designed to curtail those costs by reforming Medicaid, a joint federal-state program that pays for the health care of nearly 2.5 million low-income Texans. The solution they came up with was full-scale privatization.
As part of the legislation, the state initially hoped to turn its responsibility of delivering health care to poor Texans over to the private sector by 2002. Implementation began in earnest as the state began soliciting contracts with managed-care organizations and managed-care "pilots," which emphasize the physical health-care needs of the indigent, began rolling out seemingly overnight in places like Lubbock, Fort Worth, Houston, and now Dallas. But Northstar is by far the riskier social experiment. Only in Dallas and the six other Northstar counties will the mental-health and chemical-dependency needs of the poor be targeted.
To implement the project, the state contracted with two companies, Magellan and Virginia-based Value Options, which obligated themselves to bring the same benefits to the public sector that HMOs do to the private, in which patients receive a "continuum of care" that emphasizes preventive medicine and cuts costly expenses, such as emergency-room visits. Theoretically, the companies are supposed to save enough money that they can improve the health of their indigent consumers yet still make a profit. But even in the private sector, most HMOs in Texas are losing money. Which is precisely what worries mental-heath advocates, who argue that the only way to make a profit is by taking advantage of society's most vulnerable and destroying the quality of their care. Which, they add, wasn't so terrific to begin with.